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Investment strategies

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Investment strategies

  1. 1. Investment strategies adopted by “Jim Cramer”
  2. 2. Mr. Jim Cramer James J. "Jim" Cramer (born February 10, 1955) is an American television personality, former hedge fund manager, and best-selling author. Cramer is the host of CNBC's Mad Money and a co-founder and chairman of TheStreet.com Started Investing in the market:- Cramer started investing in the stock market during his time at law school. Cramer began promoting his holdings by leaving stock picks on his answering machine, impressing The New Republic owner Martin Peretz, who gave him $500,000 to invest; Cramer earned Peretz $150,000 in two years.
  3. 3. List of Cramer's investing rules Rule 1 : Bulls, Bears Make Money, Pigs Get Slaughtered Rule 2. Don't Buy All at Once Rule 3: Buy Damaged Stocks, Not Damaged Companies Rule 4: Do Your Stock Homework Rule 5: Buy Best-of-Breed Companies Rule 6: Diversify to Control Risk Rule 7: Check Hope at the Door Rule 8: Beware of Wall Street Hype Rule 9: explain Your Picks
  4. 4. List of Cramer's investing rules Rule 10: Bad Buys Won’t Become Takeovers Rule 11: Never subsidize losers with winners. Rule12:Wait 30 Days After Preannouncements Rule 13: Be Flexible Rule 14: Be a TV Critic Rule 15: There's Always a Bull Market Rule 16: Giving Up on Value Is a Sin Rule 17: It’s OK to Pay the Taxes Rule:18 Cash is for Winners
  5. 5. List of Cramer's investing rules Rule 19:No Woulda, Shoulda, Couldas Rule 20:Expect ,don’t fear Corrections Rule21: Don't Forget Bonds Rule 22:When the Chiefs Retreat, So Should You Rule23:Don't Own Too Many Names Rule 24: No One Made a Dime by Panicking Rule 25:Defend some stock ,not all
  6. 6. Rule 1 : Bulls, Bears Make Money, Pigs Get Slaughtered “This is Cramer's way of saying that you need to know when to sell.” Bulls make money: When the market goes up, people make money. Bears make money: When the market goes down, people make money. Pigs get slaughtered: It’s when people get greedy that they get slaughtered. Making money is good but don’t get so greedy that you’re holding the bag when the bubble bursts.
  7. 7. Rule 2. Don't Buy All at Once Cramer advocates buying your position into a stock in stages. Averaging in like this helps you get a better price. To maximize your profits, stage your buys, work your orders and try to get the best price over time. No broker likes to fool around with partial orders. No financial adviser has the time to buy stocks methodically over time. The game is to get the trade on, at one level, in a big way. Make the statement buy. Get the position on the sheets or in the portfolio.
  8. 8. Rule 3: Buy Damaged Stocks, Not Damaged Companies This goes back to buying the company behind the stock. As long as the company behind the stock is strong, profitable, and competitive, a damaged stock price is the best opportunity to buy the stock at a bargain basement price. If you buy damaged companies chances are you are going to lose money rather than profit. Buying damaged stocks that are not from damaged companies will possibly make you more money because the stock price per share will most likely rise after you buy it. If you buy damaged stocks it is possible the stock price will not get any lower and may rise for a period of time.
  9. 9. Rule 4: Do Your Stock Homework What does he mean by homework? "Listen to the conference calls. Go to the company's Web site. Read the research. Read the news stories. Everything's available on the Web. Everything. Before you buy any stock, it's important to research all aspects of the company
  10. 10. Rule 5: Buy Best-of-Breed Companies What is BEST of BREED ? A stock that represents the most optimal investment choice for a specific sector or industry due to its high quality compared to its competitors. This slang is derived from dog shows, where the highest quality dog for each breed wins an award and is given the "best of breed" title. If you do your homework and pick stocks based on the fundamentals, you will automatically follow this rule. Investing in the more expensive stock is invariably worth it because you get piece of mind.
  11. 11. Rule 6: Diversify to Control Risk Sector diversification is important. If all your stocks are from the same sector, there is always the danger of bad news in the sector ruthlessly dragging down the stock price of every company in the sector — even the good ones. If you control the downside and diversify your holdings, the upside will take care of itself. It's the only investment concept that truly works for everyone. If you can mix up enough different sectors in your portfolio, you can't be hit by one of the myriad perfect storms that come our way far more often than you would think.
  12. 12. Rule 7: Check Hope at the Door Hope is emotion, pure and simple, and trading is not a game of emotion. It is not part of the equation. Don't hold on to a battered stock in the hope that it will bounce back even though the fundamentals say otherwise. Cut your losses and move on. Battered stock : Whenever a broad industry goes into the doldrums - whether due to a decline in business prospects, economic shocks, or simply a business cycle, most investors will try to tiptoe their way around re-investing in the now toxic sector. It can be a very profitable venture for both speculators and value investors, but investing in beleaguered companies should come with an adjusted set of rules.
  13. 13. Rule 8: Beware of Wall Street Hype Cramer cautions against underestimating the Wall Street promotion machine. Analysts and firms get behind stocks — sometimes irrationally, sometimes greedily — and can keep the stocks propelled in an up direction well beyond reason. A Wall Street firm can prop up a weak stock, because they have a vested interest in it, far longer than people give them credit for. Watch for what’s hype and what’s true strength, otherwise you could be buying fluff.
  14. 14. Rule 9: Explain Your Picks You should be able to articulate your reasons for buying a stock. Selling your idea first, preferably to someone else, can help you spot flaws in your reasoning. You know the old adage about how if you can explain a concept, you understand it a lot better? The same goes for this rule. It also gives you confidence in your pick, if you can’t convince someone else to get it (at least convincingly enough to yourself) then why did you get in the first place?
  15. 15. Rule 10: Bad Buys Won’t Become Takeovers Cramer believes that buying that crappy stock in order to try to catch a buy-out is a bad move because bad stocks don’t be bought out, good stocks at low prices get bought out. The rule is: “Never speculate on companies with bad fundamentals.”
  16. 16. Rule 11: Never subsidize losers with winners. You should read the explanation yourself but it’s a good thought – don’t sell a stock that has performed well so that you can pump it into one you thought was going to do well but instead has tanked. Individuals do the same thing. They have only a finite amount of capital to invest. Rather than take the medicine -- the loss -- they hold on to the losers and sell their winners. My advice to anyone who is stuck in this position is quite simple: Sell the losers and wait a day. If you really want them, go buy them back the next day.
  17. 17. Rule12:Wait 30 Days After Preannouncements This is a good rule – wait thirty days after an announcement of bad news before you decide you want to get into a depressed stock. When a company preannounces a bad quarter, it isn’t just looking at the past. It is looking at its order book, its future. Believe me, if there were any hope that the company wouldn’t have to preannounce — hope in the form that maybe something could get better, not worse in the next 30 days — the company would wait.
  18. 18. Rule 13: Be Flexible Recognize and be open to the unexpected shifts in the market because business, by nature, is dynamic, not static. Stocks don’t live in a vacuum and things change. Conditions that made your purchase a good decision (at least in your mind) may not exist anymore, so get out. Don’t buy and hold through turbulent times if the turbulance affects the very reasons why you purchased the stock.
  19. 19. Rule 14: Be a TV Critic Don’t believe everything you hear on TV. Ha! That’s all there is to this rule… We don’t know how much “value” is in it since we probably shouldn’t believe everything you hear from anyone without doing your own research.
  20. 20. Rule 15: There's Always a Bull Market Something is always hot, always growing – so you just have to find it.
  21. 21. Rule 16: Giving Up on Value Is a Sin Buying low, selling high – and wait after you do buy low. cramer details some examples of stocks at 52-week lows with tremendous value but no buyers. The reason, he claims, is because investors aren’t patient enough to buy into these “lows” and wait for the highs to rematerialize.
  22. 22. Rule 17: It’s OK to Pay the Taxes This is a great, short post, about how you shouldn’t hold onto a stock just because you don’t want to pay short term capital gains. Some stocks are meant to be held short term and you buy them on that notion. “… no taxes are due when you sell at a loss.”
  23. 23. Rule:18 Cash is for Winners Don’t be afraid to pull out of stock and just leaving it in cash. Jim Cramer cites the reason for this aversion started when Fidelity Magellan underperformed (ten years ago) because it held too much cash and the manager was canned. Apparently, picking bad stocks can’t get you fired but not picking at all sure can. Another nugget in here that you might not pick up on is a corollary to this rule which is: Don’t be afraid of not getting enough exposure (ie. money in the market). As Warren Buffett once said, you only need a few good decisions in your investing lifetime to become very rich. You can afford to let some of them pass you by.
  24. 24. Rule 19:No Woulda, Shoulda, Couldas : This damaging emotion is destructive to the positive mindset needed to make investment decisions. Rule 20:Expect ,don’t fear Corrections: It is not always clear when a correction will strike, so expect and be prepared for one at all times Rule21: Don't Forget Bonds: It's important to watch more than stocks, and bonds are stocks' direct competition Rule 22:When the Chiefs Retreat, So Should You: High-level executives don't quit a company for personal reasons, so that is a sign something is wrong. Rule23:Don't Own Too Many Names: It can be constraining, but it's better to have a few positions you know well. Rule 24: No One Made a Dime by Panicking: There will always be a better time to leave the table, so it is best to avoid the fleeing masses Rule 25 : Defend some stock, Not all
  25. 25. Bibliography Books: “confession of a street addict” written by Jim Cramer Jim Cramer's Stay Mad for Life written by Jim crramer Internet: http://www.thestreet.com/static/25-rules.html www.investopedia.com/ http://www.thestreet.com/files/m/white-paper/sb-72/prrg-0014_white_paper.pdf

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